Indonesia’s business community has been enjoying robust expansion over the past five years on the back of strong commodity prices and rising consumer spending. Aided by record levels of foreign direct investment, the nation’s gross domestic product is tipped to exceed the $1 trillion mark this year.
Strong corporate earnings have also driven the Jakarta Composite Index to new highs and the bourse could cross the 5,000 level for the first time in history. Indonesia, it seems, could not be better placed to continue on this upward growth trajectory.
Not so, argues Suryo. The country, in fact, is facing its own fiscal cliff he said, because of the ballooning costs of fuel subsidies and lack of infrastructure spending.
In an exclusive interview with the Jakarta Globe, Suryo outlined three major challenges facing the country, and the solutions, which he said can save the economy from implosion and position it for sustainable long-term growth.
His fixes are not only practical but also readily implementable. One of Suryo’s key suggestions is the elimination of costly fuel subsidies and the reallocation of funds to help spur regional economic growth. Others include investing in new energy sources and establishing large industrial food production bases.
“If we are able to do these things, they will create stability and lead to better usage of our national resources,” he said. “Kadin [the chamber of commerce] does not agree with raising domestic fuel prices but supports the elimination of the fuel subsidies.”
A new way of thinking
As global fuel prices continue to rise, the government will have to allocate as much as $30 billion for fuel subsidies this year. Not only will this restrict the state’s ability to invest in new infrastructure, the subsidies create a false economy.
Every regional governor, afraid of running short of subsidized fuel, is requesting an increase in his or her quota. This creates shortages in the national stockpile, causing prices to rise. Furthermore, the cheap fuel creates a false sense of comfort for consumers and businesses.
“My solution is to eliminate the fuel subsidies and reallocate the money for more productive use,” Suryo said. “If, for example, the central government allocates the $500 million it saves from each of the country’s 33 provinces, it will accelerate regional growth and spread prosperity to the more underdeveloped regions of the country.”
That will amount to $16.5 billion, which means the government will have enough left over to invest and spend in other areas such as education, health care and energy.
He suggests that the remaining $13.5 billion be used to set up a sovereign wealth fund, which can acquire oil refineries and other assets in Europe and elsewhere to bolster the local economy.
“If the government allocated $5 billion to this fund, it can start shopping for refineries overseas while at the same time building refineries within the country,” Suryo said. “In Spain and Italy, they will welcome us with open arms if we offer them such deals.”
The third part of his solution is to invest heavily in agriculture given Indonesia’s fertile soil. “We need to promote industrial farming as Brazil has done. We can also buy wheat farms in South America and cattle farms in Australia so saving the billions we currently spend on importing food.”
Kadin, Suryo added, has set up a team of economists to explore and study these ideas. This way, the organization hopes to play a constructive role in offering workable solutions to the government, rather than just relying on the government to come up with fast fixes.
The chamber has also proposed a program which would better train Indonesian workers seeking jobs overseas and increase their earning power. Currently, Suryo said, Indonesian workers earn 30 percent less than Filipinos because of their lack of English skills and technical expertise.
“Our workers who seek jobs abroad are an important source of foreign exchange. We need to train them to speak English and other basic skills so they can earn higher wages for themselves,” he said. “This is one issue I would like to tackle during my term as Kadin chairman.”
“If we can fix these four key issues, Indonesia can be a global economic power,” he said. “The question we need to ask is not what we have, because that is a long list, but what we do not have, and in one word, that is economic wisdom.”-The Jakarta Globe (March 25, 2013)
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